Qualcomm ruling sends a warning on discovery

By Nancy McCarthy
Staff Writer

A federal magistrate’s ruling last month that wireless giant Qualcomm committed a “monumental discovery violation” in a patent infringement case should serve as a cautionary tale to lawyers who handle complex litigation, say legal experts. The judge’s findings highlighted issues involving electronic discovery, the division of labor and responsibilities in matters involving corporate clients and outside counsel, and the predicament faced by lawyers accused of misconduct who cannot defend themselves because of the attorney-client privilege.

San Diego Federal Magistrate Judge Barbara L. Major sanctioned Qualcomm for withholding “tens of thousands of e-mails” in a lawsuit it brought against Broadcom Corp. and ordered Qualcomm to pay Broadcom’s legal bills, which total more than $8.568 million. In an unusual move, she also referred six of Qualcomm’s outside attorneys, whom she described as “talented, well-educated and experienced,” to the State Bar for discipline. She chose not to sanction 13 other lawyers involved in the litigation.

“This is significant as an event that should cause other lawyers to wonder, ‘How do I keep it from happening here and happening to my client?’” said David McGowan, a professor at University of San Diego Law School who followed the case closely.

“I think most lawyers think, ‘This would never happen to me,’” said another lawyer involved in the case who asked not to be quoted by name. “They think, ‘Thank God I wasn’t there.’”

Qualcomm, the world’s second largest maker of semiconductors for mobile phones, sued Broadcom in 2005, alleging the Irvine chip-maker was infringing on two patents held by Qualcomm. A jury found that Broadcom had not infringed on the patents. But in the final days of the trial, a Qualcomm engineer disclosed that key e-mails had not been turned over to the defense. After the trial, thousands more documents were discovered. Trial Judge Rudi Brewster found “clear and convincing evidence” of litigation misconduct and ordered Qualcomm to pay Broadcom $9.2 million in attorneys’ fees and related costs. (Major’s order will be part of the higher amount; Qualcomm is not required to pay both.)

After trial, Qualcomm located more than 46,000 documents, totaling more than 300,000 pages, that had been requested but not produced in discovery. Although Qualcomm denied any wrongdoing, it replaced its general counsel. Major, the discovery magistrate, ordered 19 lawyers involved in the case to appear at an October hearing, where they submitted declarations and said they did not intentionally withhold evidence. But their efforts were hamstrung when Qualcomm asserted the attorney-client privilege, in essence preventing them from defending themselves.

Major said her review led “to the inevitable conclusion that Qualcomm intentionally withheld tens of thousands of decisive documents from its opponent in an effort to win this case and gain a strategic business advantage over Broadcom. Qualcomm could not have achieved this goal without some type of assistance or deliberate ignorance from its retained attorneys.”

She referred to the State Bar six Day Casebeer Madrid & Batchelder lawyers — James R. Batchelder, Adram A. Bier, Kevin K. Leung, Christian E. Mammen and Lee Patch — and Heller Ehrman lawyer Stanley Young. In an unusual move, Major specified that the lawyers may have violated two Rules of Professional Conduct: Rule 5-200, which prohibits misleading a judge or jury with false statements, and Rule 5-220, which prohibits suppressing evidence that an attorney or client has a legal obligation to reveal.

Scott Drexel, the bar’s chief trial counsel, would not comment on the case but said typically, the bar awaits the outcome of litigation before taking any disciplinary action against attorneys. “We do not want to interfere or have an impact on a pending case unless it’s absolutely necessary,” he said.

San Francisco attorney James Wagstaffe, who represents Patch, emphasized that Major acknowledged that the lawyers were unable to present exculpatory evidence and did not award any monetary sanctions against the lawyers she referred to the bar.

 “In this case, I think this nightmare will be addressed by courts that have a chance to review it,” Wagstaffe said, adding he believes his client will be exonerated. “In this country, when you’re unable to defend yourself, we normally don’t allow punishment.”

He stressed that Major rejected the notion of bad faith on the part of the lawyers, and he disagreed with her finding that they ignored red flags that they should have acted on. Wagstaffe said he expects both the trial judge and the federal circuit to review Major’s findings.

Should Qualcomm sue its lawyers for malpractice, the attorney-client privilege will be waived. Qualcomm issued a statement after Major’s ruling saying it “regrets the discovery errors” but denied it engaged in intentional misconduct.

Although most states permit attorneys to disclose confidential client information to defend themselves against allegations brought by a third party, that is not the case in California. And Judge Major rejected the self-defense exception to the privilege, leaving the lawyers vulnerable.

The self-defense exception is well-founded in common scenarios where a lawyer is defending against a direct claim by a client, such as malpractice or in an action for fees. But, says State Bar ethics expert Randall Difuntorum, the exception “isn’t all that well-developed. What makes it interesting now is that cases are coming up where the lawyer and the client are not necessarily the adversaries in the litigation. It’s not lawyers versus client,” he said. “It’s some other equation, but privilege is getting in the way of what the lawyers can say.”

McGowan suggested the Qualcomm case may lead to increased scrutiny of advance privilege waivers so counsel can protect themselves.

The case also placed a spotlight on the issue of who controls the litigation, particularly when it involves electronic discovery and thousands of documents. Dozens of lawyers, if not more, are frequently involved in complex litigation. Because of the expense, the trend is to allow in-house counsel and corporate employees to handle discovery and document review. Large tech companies in particular routinely handle their own discovery. Major’s findings suggest that in a digital environment, it is wise for attorneys to be exhaustive in their searches and to err on the side of producing documents.

“Qualcomm took my breath away because it’s sending a very clear message that discovery abuses will not be tolerated,” said Los Angeles ethics expert Diane Karpman (see Ethics Byte on p. 16).

Major herself acknowledged challenges presented by electronic discovery, writing, “For the current ‘good faith’ discovery system to function in the electronic age, attorneys and clients must work together to ensure that both understand how and where electronic documents, records and e-mails are maintained and to determine how best to locate, review and produce responsive documents. Attorneys must take responsibility for ensuring that their clients conduct a comprehensive and appropriate document search.”

She ordered Qualcomm and the sanctioned lawyers to identify the failures of discovery in the case and create a “case management protocol” to avoid such problems in the future.

Legal experts said clear lines of responsibility must be drawn at the outset of a case and remain clear throughout. But who is in charge?

“Most observers would say outside litigation counsel should never let in-house counsel handle (discovery) for you,” Difuntorum said. “The reason you’ve been hired is because of the old adage — the lawyer who represents himself has a fool for a client.” Although insiders may have greater familiarity with information and with where it is stored, “it’s really the obligation of the outside attorneys to take responsibility for it,” he said.

But John McGuckin, general counsel for Union Bank of California, disagrees. “There is no doubt in my mind that in-house general counsel is responsible for running the show,” he said. They need to manage the litigation, understand the issues and make decisions about what’s important. “There has to be quality control on the inside because we’re the first line of defense, but outside counsel cannot stick their heads in the sand,” McGuckin said. “I would think that both sides would want to be clear in the engagement letter who’s responsible for what.”

Several lawyers agreed that regardless of the issues the Qualcomm ruling raised, there’s never been a finding quite like it. The magnitude of the monetary sanctions is large, the players are sophisticated and experienced, the volume of evidence — particularly what came out after the trial concluded — was enormous, and the issue of client confidentiality handcuffed outside counsel.

McGowan praised Major for a thoughtful decision and said she tried hard to place responsibility for the failure to produce documents.

“This is not a case with a smoking gun,” he said. “It’s a case with reputable, good people doing things, each one on their own, that seemed reasonable. There’s no evidence of willful bad conduct. I tend to give them the benefit of the doubt.

“Nobody wants to have this happen to them. It’s cautionary in that it says you can wind up in a spot like this and that means be careful.”